The Advantages Of Life Insurance For Businesses

It’s a common misconception that a life insurance policy is only important for individuals or big businesses. The truth is there are many business uses of life insurance. In this article, you will discover why investment in a life insurance policy is the right decision for your business.

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Benefits of Life Insurance Policies for Businesses

Protecting Most Valuable Assets

The most important asset of a business is the people who make everything possible with their skills and knowledge. Many businesses often do not realize the importance of having insurance policies for some of the key employees of their business. These insurance policies are known as key man policies wherein the key persons for the business such as the top salesperson of an organization, a hard to replace company manager, head chef of a restaurant as well as other employees who are key to the ongoing operation of a business are insured.

It also helps with succession planning. A buy-sell agreement is used by many businesses for succession planning and this arrangement is funded with life insurance. This agreement allows the surviving partners of a business to buy out the share of the deceased partner from the estate of the deceased. This allows the surviving heir of the deceased partner to get their rightful share of the business and at the same time the living partners are also able to maintain control of the business.

Tax Management

One of the biggest benefits of life insurance for businesses is that it helps them in minimizing tax as they life insurance cash value keeps growing without any tax when these are within the policy. A life insurance policy offers a better value for a business in terms of tax benefits as compared to an annuity. The cash value accumulated in an insurance policy can be easily accessed in a relatively tax free manner by using loans and other withdrawal approaches. The value to basis withdrawal approach can be used to get the cash value from an insurance policy without payment of any income tax.

On the other hand, in case of an annuity, any withdrawal or loan is treated as income. Also, the proceeds of a life insurance policy are usually income tax free. In simple terms, the internal rate of return generated through a life insurance policy usually exceeds a comparable taxable portfolio. In some specific cases, the premium for the life insurance may also be deductible.

Cash Infusion

Cash flow mismanagement is one of the most common causes of the failure of a business. A whole life insurance policy offers an avenue for businesses to borrow against the accumulated cash value in case of an emergency or during lean times. Many small business owners make the mistake of thinking that they do not need any emergency savings in their business due to low overhead.

However, cash flow problems can affect any business. A business may lose a key client or may need to recall a product or have to invest money for technological upgrades or other such things all of which require cash infusion. For instance, many businesses suffered greatly during the recession of 2009 due to huge losses in stock market and real estate. In such times, the accumulated value in a life insurance policy allows businesses to have liquidity.

A whole life policy also offers additional value as it allows businesses to improve their credit worthiness. For instance, the cash value of the policy can be used by businesses for getting loans from banks at preferred rates. Banks usually look at the operating income of a business to decide on the business loan as well as the interest rate. A life insurance policy is considered an asset and acts as a favorable factor as it can be used as a collateral and it also demonstrates financial stability. Visit for more information.

Employee Retention Tool

Life insurance policies can also be used by businesses as an incentive to retain the best employees. For instance, group life insurance plans with vesting allows employees to grow their savings in tax deferred manner and it also allows them to access the accumulated cash value through the withdrawals or loans. These policies allow employees to determine the frequency as well as the amount they want to contribute to the policy. In these cases, the policy is owned by the employee and they have complete control over beneficiaries as well as investment options.

Many businesses also use life insurance policies to offer deferred compensation. The non-qualified deferred compensation plans are generally offered to executives as well as other important employees.

Overall, these are only some of the major benefits of life insurance for businesses. A variety of insurance plans in Miami are available today that can be further customized to suit the individual requirements of business owners. If you are a business owner and you are still not using life insurance for the reasons mentioned above, you should get in touch with an experienced life insurance agent today to learn more about various solutions available for your business.